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RUSSIAN ECONOMY IN trends and outlooks Table Russias Macroeconomic Indices Compared to Those of Some Other Countries (20102011) Country GDP growth rate, Unemployment, Inflation Budget deficit (), Government debt, % % Dec./Dec., % % of GDP % of GDP Russia 4.3 7.5 8.8 -3.2 9.USA 3.0 9.6 1.7 -10.3 94.EU, including 1.8 2.5 -6.4 79.France 1.4 9.8 1.7 -7.1 82.Germany 3.6 7.1 1.9 -3.3 84.UK 1.4 7.9 3.4 -10.2 67.CIS, including 4.6 8.9 -2.6 14.Kazakhstan 7.3 5.8 8.0 1.5 10.Belarus 7.6 0.7 9.9 -1.8 26.Ukraine 4.2 8.1 9.1 -5.7 40.China 10.3 4.1 4.7 -2.3 33.Brazil 7.5 6.7 5.9 -2.9 66.India 10.1 9.3 9.5 -8.4 64.Russia 4.2 6.7 6.1 0.8 11.USA 1.5 9.1 2.5 -9.6 100.EU, including 1.7 2.8 -4.5 82.France 1.7 9.5 2.1 -5.9 86.Germany 2.7 6.0 2.2 -1.7 82.UK 1.1 7.8 4.5 -8.5 72.CIS, including 4.6 10.2 -0.6 14.Kazakhstan 6.5 5.7 9.5 1.8 12.Belarus 5.3 0.7 108.7 -0.7 46.Ukraine 4.7 7.8 10.7 -2.8 39.China 9.5 4.0 5.1 -1.6 26.Brazil 3.8 6.7 6.3 -2.5 65.India 7.8 9.7 8.9 -7.7 62.At the same time, Russias macroeconomic stability remains extremely vulnerable. It rests on high budget revenue generated by high oil prices, which at present are staying at its historic high and in terms of constant prices are comparable with the level of the late 1970s early 1980s. The policy of increasing budget spending obligations, which implies that these situational incomes become guaranteed, is very dangerous as demonstrated by the experience of the USSR in the 1980s. Meanwhile, the non-oil deficit of the federal budget in amounted to approximately 10% of GDP, while the budget deficit amounts to approximately 4.5% of GDP with the price of oil is on its average level of the past decade (conditionally guaranteed level).

The year 2011 saw a surge in capital outflow, which exceeded $ 85bn. That outflow was produced by a combination of different factors an unfavorable investment climate, demand for foreign assets on the part of some big Russian investors, increasing competition for capital with the developing markets in Asia Latin America, the global crisis pushing up demand for placements in a reserve currency (notwithstanding the economic difficulties faced by its issuer country), and the political risks of the pre-election period. However, that systemic problem needs to be studied in-depth, so that a number of acceptable solutions could be found. Its complexity results specifically from its multi-aspect nature involving a variety of closely linked processes, so that in reality it can be broken down into several problems, each of which requires its own individual set of corrective measures.

Section Socio-political Context An economic crisis is always a starting point for modernization. Since the accumulated reserves allowed the Russian authorities to avoid bankruptcies and enforced structural modernization, they began to elaborate an agenda for modernization from above. In 2011, the discussion of the general principles of promoting modernization once again came to the fore (i.e., the discussion of a new economic growth model) and some targeted innovation development projects were initiated. The latter have taken shape as specifically oriented territorial enclaves (Skolkovo, Tomsk) or as some separate sectors for scientific and technological development (information and communication systems, outer space exploration, nanotechnologies, etc.).

Two commissions on modernization and technological development were functioning simultaneously one under the RF President, and the other under the Chairman of the RF Government.

However, modernization cannot be carried on through directives alone even if these are approved at the topmost level. Modernization (at least in its present form) requires competition both between economic agents and institutions. In this respect, two important decisions taken in 2011 in the sphere of foreign trade may become relevant modernization factors namely Russias accession to the WTO and the breakthrough achieved in post-Soviet integration (the establishment of the Customs Union and the conclusion of the agreement on the creation of the Common Economic Space between Russia, Belarus and Kazakhstan). The accession to the WTO will intensify competition for Russian producers, while the creation of the Customs Union and the Common Economic Space will supplement competition between commodities with competition between institutions.

A characteristic feature of the year 2011 has been rapid politicization of the population, which could be clearly observed in Russia and elsewhere across the globe. There were anti- government riots in the Arab world, the Occupy Wall Street movement in the developed countries, and the growth of political activism in Russia in late 2011 and early 2012. Evidently, the causes and mechanisms of politicization are region-specific in each case, but their coincidental timing cannot be overlooked. So far we can only tentatively assume that the intensity of political activity in the world will be increasing alongside the development of the global economic crisis (which does not necessarily mean its intensification).

One of the dangers that in this connection may threaten Russias economic policy will be an increasing budgetary populism in addition to political populism. However, it the latter presents no danger from the point of view of ensuring this countrys long-term stability, the former, while pursuing the noble goals of protecting the welfare of the people and some selective social groups (the military, budget funding recipients, pensioners, etc.), may in the end produce a severe economic and political crisis. At the same time, while the outer world is plagued by the crisis but this country has in store some substantial resources accumulated thanks to its governments recent conservative policy, the risks fraught in budgetary populism may become greater in response to a sudden upsurge of social and political issues.

1.1.2. The Global Economic Crisis: Its General and Specific Features The global economic crisis that began in 2008 is systemic and structural in its nature. In terms of its basic parameters it is comparable with the crises of the 1930s and 1970s. We can point to a number of fundamental features of such a crisis which, in their turn, may predetermine the factors and preconditions that will help to end it.

First, a structural crisis is determined by the presence of some serious misbalances in the organization of economic life. These are produced by fundamental technological shifts RUSSIAN ECONOMY IN trends and outlooks namely, the emergence of some fundamentally new technologies (termed a new technological way by a number of economists). That is why the exit from the crisis is associated with a transformation of the production bases of the leading countries through implementing new technologies. The creation of a new technological base will be playing the same core role in the future development as the one that way played in the mid-20th century by large-scale machine industry, and after the 1970s by microelectronics and computer systems.

A crisis implies a technological renewal which transforms demand for many industrial and consumer commodities, and especially investment and fuel and energy products. Naturally, this transformation is reflected in the prices for a majority of market commodities, and this implies an achievement of some new balances of prices and leads to a change in the political configurations.

Second, the world accumulates a variety of serious geo-economic and geo-political misbalances. The economic and political potential of each individual country develops slowly, but then comes the moment when a qualitative leap takes place, and so it becomes necessary to switch over to some new system of balances. In contemporary conditions one of the most evident examples of such misbalance has become a change in the distribution of roles between developed and developing (or rapidly developing) countries. How to find a trajectory of a better balanced growth (in terms of savings against investment, exports against domestic consumption, revenue against expenditure) this is the key issue faced by many developed and developing countries in Europe, America and Asia.

Thus, and third, a structural crisis becomes a global one. It spreads to all the leading countries; and in contemporary conditions, globally coordinated efforts will be needed in order to finally overcome it. In other words, decoupling (development along different trajectories) something that so much spoken about back in 2008 has been effectively taken off the crisis agenda. By now there have remained practically no relevant countries that have not experienced at least some of the crisis-linked process, with a varying degree of intensity. Thus it becomes even more important to ensure the participation of all those countries in working out global anti-crisis measures.

A global character of the crisis by no means rules out the possibility of its movement across the world. Depending on its specific phase, crisis phenomena may be concentrated in some specific regions or countries. Thus, the crisis originated in the USA and then spread on to Europe and a part of Asia; now it is centered mainly in Europe.

Fourth, a structural crisis is conducive to the formation of some new currency configurations a new world currency emerges (or a number of new world currencies). In the 20th century this occurred as a fundamental change in the role of gold, the prominence of the US dollar, and after the 1970s as the increasingly bi-currency character of international business settlements. In the present situation there has emerged the issue of the future prospects of the US dollar, the euro and the yuan. And there has also emerged the issue of whether or not regional reserve currencies should play a more prominent role in the future.

Fifth, a structural crisis gives rise to a serious intellectual challenge. It becomes necessary to work out a new agenda of economic and political (and also generally social) analysis. The crisis transforms into a powerful stimulus to rethinking the existing economic and political doctrines both on a global scale and in terms of a given country.

This is specifically true with regard to economic doctrines. Economists must suggest some new approaches to analyzing the economic processes, and first of all to regulating socioeconomic life. After the Great Depression the world was transformed into a Keynesian and Section Socio-political Context socialist (etatiste) one. After the experience of stagflation those ideas gave way to deregulation and liberal democracy. The new economic model must not only provide answers to the most urgent current questions, but to express these answers in a more distinct and understandable form.

This intellectual challenge become especially important in the early phases of a structural crisis when it is being countered with by means of applying those ideas and recommendations that had proved to be effective over the preceding decades of smooth economic development (with occasional bubbles being the only trouble). It takes some years to finally bring home the realization that to apply the traditional anti-crisis policy in a new setting is quite unreasonable and even harmful.

Sixth, a structural crisis lasts for approximately a decade a period termed a turbulent decade. It means that the crisis period can be broken up into separate stages, each marked by the domination of some specific problems originating in a given sector or region. But at the same time this means that no single feature can serve as a criterion for judging whether the crisis is further deepening, or if its end is near. This is also true with regard to recession (a crisis does not begin with a recession, and by no means is limited to it), as well as to the fluctuations of the stock market, and to any other parameters.

Seventh, the struggle against a crisis is associated with applying some drastic but sometimes inadequate anti-crisis measures. On the one hand, this has to do with the acuteness of the structural problems, the overcoming of which requires certain (sometimes great) economic and social sacrifices. On the other, the aforesaid intellectual unpreparedness for a structural crisis that is, attempts to solve new problems by applying old remedies produces some additional problems, thus often resulting in a further aggravation of the crisis its economic and sometimes even political aspects. Thus emerges the issue of an exit strategy (the strategy for discontinuing the anti-crisis functioning mode), and so additional time is required not only for overcoming the crisis but also for eliminating the consequences of the anti-crisis measures.

All these factors taken together can explain the fundamental difference between a systemic crisis and a cyclical one. A cyclical crisis recedes with time; it does not imply the necessity to alter a current policy but ends by itself when the economic bubble emerging during a boom period disappears. A systemic crisis, on the contrary, requires a significant transformation of the old economic policy on the basis of a new philosophy of economic life. In other words, structural problems predominate over cyclical ones.

However, the current global crisis has a number of specific features that must be taken into account when elaborating an anti-crisis policy and a viable model of socio-economic development. Many of its specific features have been produced by the technological achievements of the modern era the development of information and communications technologies that have made the world flat1 and so make it possible for businesses to rapidly shift their activities from one region or sector to another, carry on instant transactions, and to start and terminate entrepreneurial projects. The increased dynamism gives rise to some new phenomena and the resulting new economic and political conflicts.

Since the current structural crisis is evolving in the era of globalization (or, more precisely, during a qualitatively new phase of globalization), its significant features are global structural misbalances. First of all, these are misbalances between developed and developing countries, Friedman T. The World Is Flat. The Global World in the Twenty-First Century. L.: Penguin Books, 2006.

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